Trade war to hurt Southeast Asia: analyst

‘KNOCK-ON EFFECTS’: ’The success of this region is based on open trade,’ a World Bank economist said, as many Southeast Asian economies are tied into Chinese supply chains

Bloomberg

The World Bank warned that a trade war between the US and China would hurt economies in Southeast Asia as they rely on exports for growth.

Many countries in the region would feel “knock-on effects” of rising tariffs because they are tied to supply chains that feed into Chinese exports, Sudhir Shetty, the World Bank’s chief economist for the East Asia and Pacific region, told reporters in Jakarta yesterday.

“A lot of those, although they might finally be assembled and put together and exported as Chinese products, are the result of a value chain that stretches across this region, particularly in some of the larger” Southeast Asian economies, he said.

“The success of this region is based on open trade,” he said. “It’s based on the development of these value chains that over the last decade or so have increasingly centered on China.”

The world’s two biggest economies have threatened to impose tariffs on each other’s exports, clouding the outlook for global trade and growth. Chinese President Xi Jinping (習近平) offered some conciliatory words this week, promising to open the country’s economy further, which defused some of the strain.

While some observers were skeptical of the substance, it was seen as a sign a negotiated settlement could be possible.

The impact of the tariffs would be felt greatest on the US and China, and growth in advanced economies, including the US, could slow, Shetty said.

Meanwhile, exports are already faltering in some economies with shipments falling in Malaysia and the Philippines in February from a year earlier.

The US Federal Reserve on Wednesday said the prospect of a trade war poses “downside risks” to the US economy, which otherwise is poised to grow at a solid pace.

While the Fed said the steep tariffs on steel and aluminum imports that US President Donald Trump imposed last month would not on their own have a significant effect, the possibility of “retaliatory trade actions by other countries” could be harmful.

In the minutes of a monetary policy meeting on March 20 to March 21, when the Fed raised the benchmark interest rate for the first time this year, the Fed also cited “other issues and uncertainties associated with trade policies” as risks to the outlook.

Business contacts in many of the Fed’s 12 regions reported concern about the tariffs, with the agriculture sector “feeling particularly vulnerable to retaliation,” the minutes said.

Despite the concern over trade policy, the discussions by the Fed’s policysetting Federal Open Market Committee at the first meeting chaired by Trump-pick Jerome Powell were mostly upbeat and indicated that the economy was expected to grow at a solid pace.

The recent tax cuts and budget agreement “were expected to provide a significant boost to output over the next few years,” the minutes said.

However, the Fed said that it would be difficult to quantify the impact of the tax cuts, because there is little experience with providing this type of fiscal stimulus in an economy already maxed out.

Additional reporting by AFP

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